One of the concerns about filing for bankruptcy is that those folks will never be able to obtain credit again after filing for bankruptcy protection and assistance.     Most times, nothing could be further from the truth as bankruptcy may actually improve folks’ credit score, according to my clients’ experiences (and as explained by Smart Money on their website).  Every debt collection note on a credit report, every late payment, every negative notation affects a debtor’s credit score.   Bankruptcy?  It doesn’t add to the negative credit score; it replaces a number of negatives with ONE negative notation of “discharged in bankruptcy” with the account showing a “zero” balance.   That act usually improves a debtor’s credit score.   As my colleague Doug Jacobs stated in his article on this site, debtors should list all of their debts to insure that a financial fresh start is obtained.  There are a number of other ways to improve your credit score.

Post-bankruptcy, acting carefully in making financial decisions improves a debtor’s credit rating according to Liz Weston of MSN Money.   Jennifer Weston mentions eight credit repair tips in her blog:

1.  after your bankruptcy is discharged, check your credit report for errors

2. check  your report again

3.  make a budget and stick to it

4.  be careful when applying for new credit

5.  use the automatic payment function on credit so that  you won’t (ever) forget to make a payment

6.  if you have student loans, make SURE you make those payments on time (this will help rebuild your credit)

7.   apply for a secured credit card (where you deposit money against future charges)

8.  when you do obtain new credit (and you will), do NOT max out the cards.   Credit rating is affected by amount of credit available ratio to credit used.

Using the above tips, a diligent debtor will find that even a mortgage is obtainable quickly after filing for bankruptcy, according to Craig Andresen, my Minnesota colleague.   Folks who educate themselves about the ways to protect themselves and who act wisely will find that their credit score improves rapidly.

Most folks are entitled to receive one free credit report each year.  Those reports can be obtained through www.annualcreditreport.com or by going to each of the three credit reporting agencies:

Experian

Equifax

Transunion

In addition, there are three check/bank account reporting agencies:

Telecheck

Chex Systems

Early Warning Services

Debtors who have had returned checks or overdrawn checking accounts and who find themselves turned down for a new account should obtain a copy (also free) of their report from those agencies as well.

Image credit:  Andres Ruedas under Creative Commons license/Flickr

 Approximately 10-20 folks each week come to my office to talk with me regarding bankruptcy and nearly all of those folks in my office believe that they have failed.  That their lives will be ruined because the neighbors will know, the boss will know, the pastor/rabbi will know, and worst of all, their “Mom” will find out that they have filed for bankruptcy and now…they will be thought of as a loser, a deadbeat, a cheat, or a no-count bum.   As my colleague, Brett Weiss says, “they believe they are a bad person for filing bankruptcy.”  My response is to point to the very large statute of Mickey Mouse/Steamboat Willie in my hallway and ask whether they think Walt Disney was a “no-count bum”.   I point to the print of Abraham Lincoln on my office wall and ask “was HE a deadbeat?”  I ask if they remember Harry Truman….”was he a cheat?”  I point to the Ford driven by one of my staffers and ask “Was Henry Ford a loser?”

Each of those well known people filed for bankruptcy protection and received a fresh start which allowed them to move forward with their lives and make a difference in the world as we know it today.   I tell those consulting folks that while bankruptcy is a public record, unless someone goes purposefully looking for the bankruptcy filing, generally the “public” isn’t interested.

Bankruptcy has long roots in the world’s history, going back to Bible times as explained by my colleague, Rachel Foley, who writes about Isaiah 61:3 in another article on this site; even the Romans had a form of bankruptcy law.   As Russell Demott states in his article:  If God can forgive folks their debts, why is it that folks think that their pastor or “Mom” won’t?

Folks wait too long to seek help.  Please do not wait until life seems hopeless before getting good quality legal advice that may solve your financial stress.

image credit:  Claudiu Iacobut/Dreamstime under Creative Commons license

Folks are often afraid to file for bankruptcy as they worry that they will be left without possessions–that the trustee will take all their “stuff” or the kids’ “stuff”.   The ones who really worry will even try to gift away property in order to keep it out of the bankruptcy trustee’s possession.   They will start giving things away without talking to an attorney first.

STOP!!  Each and every state has laws called “exemption laws” that allow debtors (folks in debt) to keep property (certain kinds) up to a certain amount as I explained in an earlier article on this site.  Unfortunately each state is different.  Even the federal bankruptcy law has a set of exemptions for debtors and those laws help the system work, according to Doug Jacobs, California attorney.  Some states laws allow high value for possessions; other states have very low values for possessions.   But in each instance, the trustee is not going to come marching into your home and strip it clean of all furniture, appliances, bicycles, knick-knacks, books, and clothing.    Some debtors worry that the trustee will take their tax refund, as explained by Kevin Gipson of Louisiana.   If a debtor seeks legal advice from an experienced attorney, those worries can be put to rest and some pre-planning can happen.

The worst case scenario, as explained by Pamela  Stewart, a Texas bankruptcy attorney, is to transfer property to try to keep the property away from the trustee by giving it away or by hiding the asset (lying).    Folks are often upset to find that these kind of  transfers can have dire consequences, such as a denial of a bankruptcy discharge or even criminal charges by trying to hide assets.  Hiding assets is just about the worse thing a debtor can do; don’t make your life even more stressful by being dishonest.   Honest debtors find their bankruptcy a much smoother process.

Stay Tuned as the Countdown Continues!  Myth #10 debunked:  An honest debtor does not lose all his property!

photo:  National Archives/Dorothea Lange for the FSA (c. 1930) Depression

Bankruptcy filings continue to decrease according to a report by Epiq Systems in a recent article at Credit Slips by Bob Lawless.   According to the blog, bankruptcy filings are down more than 17% from 201o at the same time last year.  This trend was reported in an earlier article at the New York Times.   Since unemployment rates are still high and foreclosures continue to rise (up 23% from 2008), one might wonder why the decrease in bankruptcy filings?

My colleague Cathy Moran recently wrote about investing in bankruptcy as a tool to regain control of a debtor’s financial future.  Cathy is absolutely right — when the time is right.  My recent experience with folks coming in for consultations is that folks are too broke to even consider filing for bankruptcy–their unemployment has run out, the mortgage company isn’t foreclosing, and there is nothing for creditors to seize, even if a lawsuit is filed–no property, no money in bank accounts, no valuable assets, no wages, no land.

My advice to these folks is to wait to file bankruptcy until their immediate needs for food, shelter, utilities are met.    When those needs are met or even exceeded or a job is gained, then, bankruptcy is the next step to have a secure financial future.  Just the knowledge that the creditors are out there waiting to pounce is frightening folks into coming in for consultations.

Robert Lawless who wrote the Credit Slips piece and who is quoted in the New York Times article stated in that article that there are many myths about what drives the bankruptcy rates — but that really, it is tied to the use of consumer credit.  Mr. Lawless is correct:  another recent article by the credit card industry points out the significant decline in the use of credit cards in 2011.    Perhaps the credit card industry should be re-thinking the push they made in 2005 to amend the bankruptcy code to make bankruptcy filing more restrictive?

Image credit: Factoryjoe under Creative Commons license

Bankruptcy and identity theft?   How can this be an issue if someone is discharging debt?   There are debtors who file for bankruptcy protection due to someone having stolen their identity.  There are bankruptcy debtors  whose identity is stolen and the thief files for bankruptcy.   Then, there are those folks  who worry about their identity being stolen while in bankruptcy due to creditor’s who treat confidential information casually.   When creditors release confidential data in public records, identity theft risk increases dramatically.   What can the average person do to protect themselves, whether in or out of bankruptcy court? 

In the September 2011 issue of Money, Ann Carrns provided excellent steps that could be taken by the average person to protect their identity from being stolen in her article, “Defend Your Data After a Breach.”   Ms. Carrns pointed out that the Privacy Rights Clearinghouse had tracked 313 corporate breaches of data by hackers or by compromising confidential information by the corporation — during the first 8 months of 2011.    While only 4% of Americans have been the victims of identity theft, Ms. Carrns reports that when a breach is involved, that statistic jumps to 17%, or nearly 1 in 5 persons.

Ms. Carrns recommends the following if you are notified of  a breach in your personal confidential data:

1.  Password.  If your password is compromised, change it immediately.  Make each account’s password unique.

2.  E-mail Address:   The main risk is phishing attempts — where an email purportedly from one of your creditors asks for a response which provides confidential information or other data.  If you are suspicious of any email, call the creditor or company instead of responding to the email.

3.  Credit Card number:  Monitor your accounts.  If you are notified of a breach by a credit card company, ask for a new account number and card.

4.  Debit or Bank Information:   If your debit card number is compromised, cancel that card and cancel the PIN.   If the account number is compromised, close the account and open another with a new number.  Ms. Carrns suggests asking for a flag to be put on the account for a verbal password.

5.  Brokerage Account Information:   If account number is exposed, close that account and get another with a new number.

6.  Social Security Number:   Get a fraud alert on your credit report to let lenders know to request additional information if any new account is attempted to be opened.  A regular fraud alert will last for 90 days and can be renewed.  A more rigid alert, a “security freeze” prevents anyone from opening any new account (even you).   The freeze has to be removed in order to open a new account.  There is a fee for a security freeze.

7.  Credit Report Monitoring.  If any of the above breaches happen, you may be offered free credit report monitoring.   There are services that also provide this service for a fee.   At the very least, you should obtain a copy each year of your credit report.   You are entitled to one free copy each year, available at www.annualcreditreport.com.

As my colleague, David Leibowitz’ article on this site states, redaction is the answer.  If you receive notice that your confidential information has been released in a document filed in the bankruptcy court, consider taking the steps outlined by Ms. Carrns to protect yourself from future identity theft problems.

photo credit:  immagine.com/stockconnection

Stephen Gandel, senior writer over at Time Magazine,  discussed the recent news from Bank of America of BOA’s plans to donate lots after bulldozing 100 foreclosed Cleveland homes.   The lots will be donated to local government authorities.    That donation adds to earlier donations of lots where 100 bulldozed Detroit homes once sat along with another donation of 150 lots in Chicago.

BOA is not the only mortgage company suddenly donating land to city or county governments or non-profit organizations.    JPMorgan Chase has donated over 1900 homes or lots with demolished homes to city or county government.  Wells Fargo also announced their donation in a recent article at DSnews.com:

“Wells Fargo is pleased to have been the first bank working with the Cuyahoga County Land Reutilization Corporation to donate both properties and funds to the Land Bank,” said

Russ Cross, Midwest regional servicing director for Wells Fargo Home Mortgage, says the company will be looking at additional properties it can contribute to the Cuyahoga County Land Bank this year.

Cuyahoga County Land Bank is a Cleveland-area land organization (actual name is Cuyahoga County Land Reutilization Corporation, but it is informally known as the Cuyahoga County Land Bank) formed in 2009 by two county commissioners and the county treasurer serving as initial directors and was formed in response to the wave of foreclosures hitting Ohio.   The Ohio legislature passed new legislation which provided  for the establishment of nonprofit corporations to promote, develop, manage, and facilitate the reclamation, holding, rehabilitation, and reutilization of vacant, abandoned, tax-foreclosed, and other real property.     The first one to be established was the Cuyahoga County Land Bank.   The Land Bank has now acquired 1,200 properties and promotes collaborative agreements with the foreclosing mortgage lender so that the properties can be revitalized and become an asset to the community.

Mr. Gandel’s article goes on to state:

The banks do the deals because once the properties are donated they no longer have to pay taxes or for upkeep. Tax experts say the banks may also be able to get a write off for the donation. That appears to be a better deal than trying to repair some of these homes, which according to a BofAspokesperson are more economical to demolish than fix up. The local governments like these deals because they get free land to develop or use for open space. Cleveland-based Cuyahoga County Land Reuntilization Corp., which inked the deal with BofA, has been one of the most aggressive local government organizations in striking these deals. Housing economists like these deals because they remove homes from the market that would otherwise sell for a low price or not at all, dragging down home prices in general. An oversupply of homes on the market has been once of the big problems plaguing real estate. At the end of June, it would take nine and a half months for the current number of homes on the market to sell. The housing market is considered healthy when supply equals six months of sales. So taking some of these homes off the market for good could remove some of the inventory drag.

Mr. Gandel concludes that banks and other entities are ready to do something new in order to provide stability to the housing market.   This writer would suggest….mortgage modification through the bankruptcy process might bring more stability than knocking down houses.

photo:   fotosearch.com

Hat tip to Yahoo:  http://news.yahoo.com/bulldoze-way-foreclose-102000063.html for reporting Mr. Gandel’s analysis.

InsideARM, a accounts receivable management blog reported today that during the past week, a consumer was awardeda $1.26 Million verdict in a Fair Debt Collection Practices Act (FDCPA) lawsuit  in New Mexico.  The consumer, a “Lucinda Yazzie”, had brought the lawsuit after the debt collector had attempted twice to garnish wages for a debt that the consumer had disputed with the debt collector.

Lucinda Yazzie told the debt collector, Farnell & Sandlin, a law firm, that she had never had a Target credit card for which they were collecting.   Instead of stopping collection, the debt collector obtained a judgment, then attempted to garnish Yazzie’s wages.   The wage garnishment was stopped the first time, but then two years later, a second garnishment was served on Yazzie’s employer.   That order stayed in effect and a hearing on the order was pending when Yazzie filed the FDCPA case against the debt collector and against Target as well with Robert Treinen, of Albuquerque, New Mexico as her attorney.

During the litigation, it was discovered that Target had supplied the correct account information, social security number and identifying information on a different Lucinda Yazzie to Farnell & Sandlin.  However, later in the process, an employee had changed the social security number to that of the Lucinda Yazzie who was eventually garnished.

The jury found that $161,000 in actual damages was appropriate and then awarded $1.1 million in punitive damages.

The Fair Debt Collection Practices Act was implemented to protect consumers from unfair, deceptive and illegal acts of debt collectors and damages may be awarded in those cases.   Consumers have recently received $311,00o from a Montana jury, according to my colleague Carmen Dellutri of Florida’s blog article.    A debt collector is anyone who collects the debts for another, even a law firm can be a debt collector.   If your rights have been violated, see an experienced consumer attorney for guidance about whether the FDCPA can be of assistance to you.

photo:  istockphoto.com

My colleague, Kurt O’Keefe, of Michigan, recently wrote regarding the difference between reaffirming a lease and reaffirming a secured loan on a vehicle.  He stated throughout his article that a lease was a different type of animal – neither secured or unsecured and a lease can be assumed or rejected.   His final point was that assumption of a lease did not mean that a debtor was again personally liable on the debt (the opposite of what would happen in a secured loan situation).   However, there is more to the issue.

When a Chapter 7 bankruptcy is filed, one of the forms filed with the court is a Statement of Intention.  That Statement tells creditors what the the intention is regarding leased property and secured debts.   Since 2005 and the adoption of the Bankruptcy Abuse Prevention and Consumer Protection Act, chapter 7 debtors are limited to three choices:   (1) surrendering the item that secures the debt or lease (2) redemption of the secured item by paying the creditor the market value of the item or (3) reaffirmation of the debt, meaning that the debtor agrees to pay the debt and the creditor can pursue the debtor after bankruptcy if the debtor fails to follow through with the payments (and also repossess the secured item, usually cars).   The Statement of Intention indicates whether the debtor is willing to assume or wants to reject.   However, it is not up to the debtor whether the contract continues in a Chapter 7.   The decision belongs to the Trustee and the Creditor according to a recent Oregon Bankruptcy Court decision.

In 2010, chapter 7 bankruptcy debtors in Oregon,  brought a lawsuit following their discharge against Ford Motor Credit.   Ford Motor Credit repossessed their leased automobile following discharge and while the debtors were current with payments.    The debtors, Michael and Jamie Smith, had received a reaffirmation agreement from Ford Motor Credit, which the Smiths filled out and returned to Ford.   However, the  reaffirmation agreement was never filed with the Court.    The Chapter 7 Bankruptcy  Trustee specifically declined to assume the contract on behalf of the debtors’ estate.      The defendant, Ford, brought a motion to dismiss.   The Court granted the motion and summarized its decision:

Smith v. FMCC, 10-6091-fra, In re Smith, 09-64658-fra7 (Oregon, 9/13/10).

In the Smith case, the vehicle was not mentioned on the personal property schedule (Schedule B); the lease was properly mentioned on the lease/executory contract schedule (Schedule G).   However, on the Statement of Intention, no mention of the lease or the vehicle was on the Smith form. 

The Court found that the debtors had not complied with the 45-day requirement and that 11 USC Section 365(d) provides that the trustee may assume or reject the lease.   If the trustee rejects the lease, then at the lessor’s option, the lease may be assumed.  If the creditor doesn’t want to allow the assumption, then the creditor can resort to state law breach of contract remedies and repossess the vehicle (even if, as in the Smith case, the debtors were current on the lease payments).   The court then dismissed the complaint as there had been no violation of the bankruptcy code by Ford Motor Credit.

Chapter 7 Debtors beware!!   A Creditor may decide that a leased vehicle is valuable enough that the Creditor will not allow assumption of a lease by debtors.

photo:  istock.com

Recently in an article in the Army Times, writer and attorney Matthew Tully reported that bankruptcy (he did not mention any difference between filing a Chapter 7 versus a Chapter 13) would affect a servicemember’s security clearance.    Later in his article, he advised in his article that a bankruptcy would have an impact but then explained that each servicemember’s case is examined on a case-by-case basis.

Then, he advises that folks with good reasons for money troubles would have those reasons taken into account. “Often, it is not the action (bankruptcy) that hurts an applicant, but the situation surrounding it (running up a credit card tab gambling in Vegas, for example).”

My experience differs from Mr. Tully’s and I couldn’t disagree more with the way the problem was presented. 

My issue with Attorney Tully’s article is the first paragraph which answers “YES” in emphatic words but then goes on to explain, “maybe not.”.   It has been my experience, having filed bankruptcy for probably over 100 military folks, that the filing of a bankruptcy does not impact their jobs, their clearance, or their future in the military, as long as they are honest with their command and do not try to keep it a secret.   On the contrary, one service member client of mine received two promotions during his chapter 13 case.   Mr. Tully’s article does go on to explain that the military would consider whether the financial problems started long ago, that the financial problems were caused by outside influences (by a spouse lay-off, for example), or that the servicemember is now trying to get help for the problem.

It has been my experience that going to see an attorney about filing bankruptcy is “trying to get help for the problem”.   Unfortunately, Mr. Tully’s article starts off with an emphasis on the negative aspects of bankruptcy and promotes the “shame game” — that only bad people file for bankruptcy, that irresponsible people are trying to avoid their mistakes.   It has been my experience that the vast majority of debtors are good people fallen upon hard times.   My experience has been that one of the four D’s drive folks into my office:

DIVORCE (leads to loss of income)

DISCHARGE (from employment)(leads to loss of income)

DEATH (of a spouse)(leads to loss of income)

DISABILITY (medical bills, illness, permanent or temporary disability)(leads to loss of income).

I have spoken with Department of Defense investigators who have come to discuss a servicemember’s financial difficulties or their case.  It has been their position that a servicemember who is in financial difficulty is a far more serious threat to national security than is one who is taking care of the problem.  While there are significant protections for an active servicemember under the Servicemember’s Civil Relief Act, those protections are not available to our reservists.  Bankruptcy is available to both active and reservists.

Often when I finish talking to a potential client about bankruptcy, the person will ask:  ”How will my credit score be affected?  Will I be able to purchase anything on credit again EVER?”     I tell them it is up to them how their credit score is rebuilt after a bankruptcy.   My clients receive a information packet at the end of their case which offers suggestions for rebuilding credit.   Also, in that packet is a list of websites that I suggest become part of their weekly or daily internet reading.  The websites are divided into different areas:

Financial:

www.bankrate.com and www.hsh.com- (free) sites offering information on interest rates for credit cards, autos, mortgages and links to the prime rate and the LIBOR rate.  the site also lists offers for low interest credit cards.

Budgeting:

www.mint.com – (free) budget creator for managing household expenses

www.choosetosave.org (free) calculator designed to help folks save for retirement

Charity:

www.irs.gov – look up where your money is going (type in the search box “charities”); make sure your donations are going to the right place and then make sure you take the deduction on your tax return.

Continue to Learn:

www.sesameworkshop.org – site offers videos and basic money lessons from Elmo.  It is never to early (or late) to learn the basics of money and simple budgeting.

www.careprogram.squarespace.com – program offered by bankruptcy courts around the country to educate elementary and high school children about money and budgets.   If your school doesn’t offer the program, call the principal and ask why?

Credit Reports:

www.annualcreditreport.com –  links to three credit reporting agencies, Experian, Equifax and Transunion.   You are able to get one free report from each every year.  My clients are advised to get the three credit reports about 30 days after their bankruptcy is complete and to check the credit reports for outstanding balances and accuracy.    If items are reported inaccurately, you should see your bankruptcy attorney.

www.chexsystems.com and – www.telecheck.com — both are another kind of credit reporting agency.  These provide service to banks and credit unions before a new account is opened.   I advise my clients to get these two reports too.

By using your credit wisely and learning to budget for savings, retirement, and the necessities of life, you will recover quickly from the effect of bankruptcy on your credit score!